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1.30 Is the New 1.20

The value of money tends to decline over time. CHF 100 will no longer buy you the same basket of goods and services as it did 20 years ago. In fact, the CHF lost around 10% of its purchasing power over this period – or, to put it another way, prices of goods and services in Switzerland rose by 10%. Clearly, this (long-term) devaluation applies to all currencies and not just to the CHF. The EUR, for example, has lost as much as 40% of its value over the same period. Since the CHF shed less value than the EUR, it should therefore come as no surprise that the EUR also weakened substantially against the CHF over this period. The CHF is currently trading at almost at the same level as its former floor of CHF 1.20 per EUR. Taking into account the above-mentioned inflation differential – that is, the difference in the speed at which purchasing power is lost – the CHF is actually weaker now than when the lower limit was introduced in September 2011. On an inflation-adjusted basis, the current exchange rate of 1.20 is equivalent to one of 1.30 in September 2011.

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